India’s rupee is currently overvalued by 5-7%, a senior government adviser said on Tuesday, indicating that New Delhi is unlikely to support intervening in the market despite the currency shedding close to 7% against the dollar this year.
The rupee fell to a record low of 69.0950 to the dollar on Thursday and closed at 68.57 on Tuesday. It is the worst performing currency in Asia this year.
“The rate of inflation in India has been much higher than the global rate and that is what determines the real effective exchange rate,” Rajiv Kumar, vice chairman of NITI Aayog, told reporters in New Delhi. “And the real effective exchange rate today at 69 or 68.97 is still overvalued by 5 to 7%.”
‘No need to intervene’
Mr. Kumar, who is on the Reserve Bank of India’s board, said intervention was not necessary. “There is no question at all of either getting worried, getting nervous or intervening in the market,” Mr. Kumar said, adding India’s economic growth was expected to pick up to more than 8% in the next year from 7.7% in the March quarter.
He said India was not aiming to protect the rupee at any particular level and any RBI intervention was aimed at only containing volatility.
UBS Securities said in a note the rupee was expected to remain in the range of 68-72 against dollar in the short term, on rising external risks, but added the RBI would intervene to control volatility. “If external stress continues to rise and/or the USD strengthens, we believe policymakers could consider raising USD deposits as a last resort to stabilise the rupee,” UBS Securities added.
